Scandal Shakes Brazil's Economy

A votes-for-money scandal has shaken the administration's foundations here in Brazil, putting most of the economy in a wait-and-see mode while everything gets sorted out. President Lula's chief of staff Jose Dirceu resigned from his post, along with the Worker's Party head Jose Genoino and treasurer Delubio Soares, after their names were involved in the corruption scheme.

Meanwhile, Brazilian soybean producers are in a wait-and-see mode of their own as final planting decisions are being made. There haven't been a lot of positive signs.

Take the soybean farmers from Mato Grosso, for instance, Brazil's largest soybean-producing state. With less than two months before the first plantings will start, more than 2.5 million tons of 2004-05 soybeans are still in storage. An additional 3.5-plus million tons acquired by traders still await sale to overseas markets. Overall, this means a total of approximately 45% of the state harvest is still unsold. By this time last year, something like 80% of the harvest had already been negotiated.

Gustavo Goncalves, director of the Soybean Producers Association (Aprosoja) says some of the main concerns for producers here include the low U.S. dollar exchange rate and the lack of enough credit for the upcoming crop. “For every dollar of imported ag chemicals, producers had to shell out 3.20 reals. Now, they still have large stocks of beans to export, but they're getting only 2.40 reals to the dollar,” he says.

Aprosoja was founded in 1990, and according to Goncalves represents more than 240,000 soybean producers whose total planted area comes to 5.4 million acres. The association's main task is to look out for rural interests, mostly in the political arena. No doubt it's been tough to lobby when congressional activities are practically paralyzed thanks to the corruption scandal. Two separate House and Senate committees are now investigating alleged millionaire “donations” to several congressmen.

So Aprosoja has taken on another chore: bargaining for a lower biotech bean cost. “The price of seeds and royalty fees Monsanto wants to charge are too high. There is no way our producers can take on such costs with current prices for soybeans,” Goncalves says.

Monsanto has established a list price of about 17¢/lb. for its Roundup Ready seed. In the past, the company's major foes were environmental groups and consumer entities, but some of its former allies are also becoming critics. Senator Osmar Dias, a strong supporter of biotech crops, has even suggested a boycott of Monsanto's seed should the company maintain its adamant stance on price.

In Paraná, Brazil's second largest soybean-producing state, where many farmers were planning to test-plant biotech beans, the cost question remains academic in view of a legal fight. While the president signed the law authorizing the planting and trading of GM crops, Paraná Governor Roberto Requiao has issued edicts banning any activity involving biotech soybeans in the state, and won't allow biotech beans to be shipped out of the state's Port of Paranaguá.

Goncalves affirms the lack of financing is the most relevant issue in Rio Grande do Sul, the third largest producer, where droughts afflicted farmers in four out of the past five years. Almost total losses in the 2004-05 season, heavy indebtedness and lack of credit lines to acquire inputs and install irrigation systems will certainly lead to a decrease in the state's 2005-06 harvest output.

Ag experts project an overall reduction of 1-3% in Brazilian soybean production for the coming season. Current high stocks, continued low market prices, an unfavorable exchange rate, lack of capital and credit, high input costs, and a volatile political scenario are factors weighing heavily in the minds of producers. Also, farmers may increase the area planted with corn, which is fetching better prices in the market right now.

A reduction in total production seems more likely as other key indicators are analyzed. The National Fertilizer Association (Anda) has announced a decrease of almost 28% in fertilizer sales during the first half of 2005 — 5.8 million tons, vs. 8.1 million tons in the same period of 2004.